Tax receivables

According to the Quarterly Observatory on Corporate Crises (source: Cerved Group, data referring to the third quarter of 2014), 2014 confirmed that Italian companies are facing a systemic crisis: failures were on the rise in all sectors and geographic areas. There were 3 thousand filings for bankruptcy between July and September 2014, up 14,1% year-on-year. 2014 saw over 11 thousand defaults, growing 11,9% from the prior year.

The average bankruptcy risk of Italian companies (source: Cerved - the CeGRI, Cerved Group Risk Index, provides a measure on a scale from 1 – Minimum Risk to 100 – Maximum Risk) is estimated to have fallen slightly in 2014, to 74,3 points (75,6 in 2013), and is expected to drop further in 2015, to 70,1 points. Concerning individual sectors, here are the changes in the CeGRI from 2013 to 2014:

Agriculture: from 64,2 to 63,6 (estimated at 62,5 in 2015)

Industry: from 73,1 to 71,9 (estimated at 69,9 in 2015)

Construction: from 81,6 to 79,9 (estimated at 77,8 in 2015)

Services: from 74,8 to 73,0 (estimated at 71,4 in 2015).

The rise in bankruptcies during the first nine months of 2014 was registered for all forms of business, although with varying growth rates: 13,9% for limited companies, 6,3% for partnerships, and 6,1% for other forms. All economic sectors experienced an increase in bankruptcies: service firms led the way with a 16,2% rise, followed by construction companies (+11,8%). The pace sped up also among industrial entities (+3,5%).

Insolvencies rose also across all geographic areas, although not all of them saw the trend accelerate compared to last year. Specifically, in Italy's North East, bankruptcies grew double-digit in the first nine months of 2013, whereas in 2014 they were up 4,4%. The Centre and the South/Islands confirmed the trend registered in 2013, with a nearly 14% rise for the first nine months of 2014. The North West continued to deteriorate, going from 9,6% in 2013 to 13,8% in the first three quarters of 2014.

500 non-bankruptcy workouts were entered into between July and September, sharply down from the prior-year period (-24%). In the first nine months of the year, a total 2.200 agreements were filed, plunging by 40%.

The breakdown by sector reveals that approximately half of non-bankruptcy workouts concerned service firms: between January and September, the relevant number was down 12,5% from the prior-year period. There was an even larger drop among manufacturers (-19,8%), whereas construction companies registered a relatively mild decrease (-6,2%). Geographically, the slowdown was registered across the whole country, with the North East falling -18,2%, the South and the Islands -16,2%, the Centre -16,8%, and the North West -8.9%.

Against the backdrop of the above trend in insolvency proceedings, the market for tax receivables usually arising from them has been valued at 40 to 50 million Euro over the last five years, with peaks related to the disposal of large portfolios of receivables due from insolvency proceedings of important industrial groups and/or Extraordinary Administration proceedings.

Considering Italy's economy, operations related to Insolvency Proceedings (Bankruptcies, Arrangements with Creditors, Compulsory Liquidations and Extraordinary Administration proceedings) are likely to rise, despite a slight decrease in the number of companies in Liquidation and “blank” filings for arrangements with creditors (Concordato “in bianco”). Furthermore, once again in 2014 our historic relationship with leading firms which propose Bankruptcy Agreements (Assignees - Assuntori) strongly contributed to the rise in purchasing volumes.